Cicala Opines on the Fed's Discount Window Tool Needing an Overhaul to Avoid Future Crises in Law360
Stinson LLP Partner Cris Cicala authored an article for Law360, "Discount Window Reform Needed To Curb Modern Bank Runs." Cicala opines on why the Federal Reserve should modernize the discount window, which was initially created to provide liquidity to banks during financial stress, as a means for addressing the current challenges of the U.S. financial system.
"It would be preferable from both the perspective of the Fed and the public at large for banks that are in trouble to utilize the window if not to save themselves but as a way to slow down the process of their dissolution, allowing financial markets to more easily digest their assets," Cicala writes. The discount window helps both an individual bank to mitigate a potential liquidity crisis and protects the stability of the larger financial system. He says the current Discount Window Lending tool is outdated and underutilized by many banks.
Cicala offers three areas for improvement, including destigmatizing the discount window and encouraging healthy banks to routinely use it, streamlining the current process through automation and prepositioning of collateral, and requiring that all banks have a plan in place to use the discount window.
"The good news is the Fed seems to understand this antiquated but effective tool needs to be overhauled before the next banking crisis," Cicala says. "If history is any indication, it is likely to take a combination of oversight, better messaging from the Fed and possibly some arm-twisting to change attitudes among member banks."
A finance, banking and corporate attorney with more than two decades of both domestic and international experience, Cicala focuses his multifaceted practice on providing financial institutions, corporations, private equity and credit funds, real estate developers, media companies and entrepreneurs with practical and strategic legal advice.
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